February 5th, 2019 4:42 PM by Richard Sardella MLO.100007700/NMLS 233568
Early today the 10-yr note yield increased to 2.74%, up +2 bps from yesterday. By 8:30 am ET the note inched back to unchanged and in early activity in the MBS prices were unchanged as well. The pre-open trading in the equity markets had the DJIA +100 at 8:30.
This evening it’s the State of the Union address. We doubt if, whatever is said or how it is swallowed, there will be much reaction in the financial markets. The two parties are so divided now that it’s difficult to see any improvements. The president will push for the Wall while Democrats are nowhere near giving it any funding. Yesterday there was a lot of talk that he may declare a national emergency to move around Congress to build it; we doubt he will make that threat in the speech this evening. Feb 15th is fast approaching; the date Trump said he would shut the government down again if the Wall money isn’t achieved ($5.7B). We also doubt he will shut down the government again; even he has seen the mess and turmoil. Senate Majority Leader Mitch McConnell commented yesterday; “I’m for whatever works that prevents the level of dysfunction we’ve seen on full display here the last month, and also doesn’t bring about a view on the president’s part that he needs to declare a national emergency.” The speech is scheduled to begin at 9:00 pm.
Federal Reserve Chairman Jerome Powell met Donald Trump at the White House for dinner Monday to discuss the economy’s performance and outlook, but the central bank said Powell did not share the president’s expectations for monetary policy. According to a Fed statement Powell “did not discuss his expectations for monetary policy, except to stress that the path of policy will depend entirely on incoming economic information and what that means for the outlook.” Fed Vice Chairman Richard Clarida and Treasury Secretary Steven Mnuchin were also at the dinner.
At 9:30 am the-yr note, after trading weaker earlier, is getting traction as stocks increase, and was at 2.71%, down 1 bps from yesterday and down 3 bps from earlier today.
At 10:00 am the Jan ISM non-manufacturing index was thought to be 57.1 from 57.6. As reported the index declined to 56.7, but December, originally reported at 57.6, was revised to 58.0. No market reactions.
At 1:00 pm this afternoon the Treasury will auction $38B of 3-yr notes. Last week the Treasury sold 2s, 5s, and 7s; for the most part, all three auctions were well bid compared to auctions earlier this year. Tomorrow and Thursday it will be 10s and 30s, both new issues; how demand and bidding go will have an impact on MBS prices.
The State of the Union address tonight will likely keep US financial markets generally quiet. Our models and other technical indicators for the 10-yr note remain neutral. With heavy supply tomorrow and Thursday rate markets should remain orderly; the caveat though is if the equity markets rally strongly it will help the bond market; that is what we are seeing recently. Historically when equity markets improve it puts pressure on rates with money moving into stocks and out of fixed income. These days when stocks improve treasury rates have found support; both markets are still working on the current belief that the Fed will not increase rates this year and inflation won’t escalate.
PRICES @ 10:00 AM
10 yr. note: +5/32 (15 bp) 2.705% -1.5 bp
5 yr. note: +3/32 (9 bp) 2.51% -2 bp
2 Yr. note: +2/32 (6 bp) 2.51% -2 bp
30 yr. bond: +11/32 (34 bp) 3.04% -2 bp
Libor Rates: 1 mo. 2.513%; 3 mo. 2.734%; 6 mo. 2.795%; 1 yr. 2.980% (2/4/19)
30 yr. FNMA 4.0: @9:30 102.03 +3 bp (+11 bp from 9:30 yesterday)
15 yr. FNMA 3.5: @9:30 101.61 +9 bp (+11 bp from 9:30 yesterday)
30 yr. GNMA 4.0: @9:30 102.56 +5 bp (+13 bp from 9:30 yesterday)
Dollar/Yuan: $6.7448 unch (Asian markets closed for Lunar New Year)
Dollar/Yen: 109.95 +0.06 yen
Dollar/Euro: $1.1417 -$0.0020
Dollar Index: 95.95 +0.12
Gold: $1318.90 -$0.40
Crude Oil: $53.97 -$0.59
DJIA: 25,363.93 +124.56
NASDAQ: 7387.56 +40.02
S&P 500: 2731.93 +7.06
Richard Sardella has been actively managing and providing services in the mortgage industry for over 27 years. Richard serves on the board of directors as President of Colorado Home Mortgages Inc.
All information furnished has been forwarded to you and is provided by thetbwsgroup only for informational purposes. Forecasting shall be considered as events which may be expected but not guaranteed. Neither the forwarding party and/or company nor thetbwsgroup assume any responsibility to any person who relies on information or forecasting contained in this report and disclaims all liability in respect to decisions or actions, or lack thereof based on any or all of the contents of this report.
MLO of record MLO.100007700 / NMLS#233568 / CHM NMLS#127716.